The 7 Best Growth Stocks to Buy in October
It’s shaping up to be another rough earnings season for the big tech companies. A slowdown in the advertising sector in particular has hit companies like Meta Platforms (NASDAQ:META) and Alphabet (NASDAQ:GOOGL) hard. And, almost every week, we hear about more big layoffs and spending cuts in the tech industry. Many investors are understandably throwing in the towel on growth stocks.
But that might be an overreaction. Clearly, people paid too much for a lot of growth companies in 2021. Like any industry, technology companies aren’t immune to corrections and economic setbacks. However, for investors who want to add growth stocks to their portfolios, this pullback has provided many great opportunities.
Admittedly, there is no sign that the technology industry has reached a positive turning point just yet. We could have another rough couple of quarters before the tide turns. But, for those who want to invest in growth stocks, these seven companies should perform well once investors’ overall sentiment starts to improve.
Texas Instruments (TXN)
Texas Instruments (NASDAQ:TXN) is a leading semiconductor company, with a focus on analog chips. Its analog business has been its saving grace during the rapidly worsening semiconductor bust. Because Texas Instruments focuses on chips for niche industrial applications, it faces a lot less competition than semiconductor makers that target larger, consumer-oriented end markets such as smartphones and consumer electronics.
Texas Instruments is well-positioned as the modern world continues to utilize more and more chips. The
Internet of Things, connected cars, remote monitoring and security are all made possible by the sorts of semiconductors that Texas Instruments builds.
The company is also focused on the returns of its shareholders. It has increased its dividend annually for 16 consecutive years and buys back tons of its own stock. TXN stock currently yields more than 3%, and its shares are going for just 17 times its forward earnings.
The company’s financial results can be boosted by the CHIPS Act, which provides funding to firms, including Texas Instruments, that build new semiconductor factories in the United States.
Microsoft (NASDAQ:MSFT) shares sold off following the company’s latest earnings report. Unlike, say, Alphabet, however, Microsoft’s results weren’t all that bad. Global PC sales were really weak, which hurt the results of its Windows and Office businesses. However, that was to be expected, given the earnings results of the semiconductor companies, and doesn’t indicate that there’s a specific problem with Microsoft.
Meanwhile, Azure continues to be a beast. The revenue of Microsoft’s cloud unit expanded at a 37% rate last quarter. That’s down slightly from its growth in past years, but consider how huge Azure already is at this point.
Given Azure’s huge revenue, 37% growth is impressive. Long story short, Microsoft’s growth has decelerated following a tremendous 2021, but its business won’t face nearly the same struggles that Alphabet or Meta will in the near-term.
On the valuation side, MSFT stock is going for 25 times forward earnings. That’s not the cheapest growth stock out there by any means, but it’s a fine price for a business that can still grow its revenues at a double-digit-percentage clip and core businesses that are tough to compete with. Microsoft is as high-quality as it comes in the tech space, and its valuation is reasonable today.
Speaking of Microsoft, its success has helped a variety of its vendors as well. One of these is Avepoint (NASDAQ:AVPT), which is a software-as-a-service company. AvePoint’s mission is to help clients with their implementation of Microsoft 365 and Azure.
When a company with an old database wants to transfer its information to the cloud, it can face a variety of hassles and obstacles. AvePoint oversees companies’ transition from their old computing architecture to Microsoft’s cloud. Once set up, AvePoint can provide additional ongoing services, such as data security and storage.
Investors were initially worried that AvePoint’s business was too tied to Microsoft’s success. However, as Azure continues to post huge numbers the addressable market of AvePoint has increased. AvePoint’s annual revenues are now up to $225 million, giving the stock an enterprise value/sales ratio of less than three.
Since AvePoint has a large net cash position, it has plenty of resources to ride out the tech sector’s bear market. And at $4.15, AVPT stock is down almost 60% from its initial SPAC offering price.
Zoetis (NYSE:ZTS) is focused on animal health. It researches, commercializes, produces, and distributes a wide range of vaccines, diagnostic products, and medicines for animals, including livestock and pets.
Zoetis has had an incredible track record over the past decade. Since 2012, its free cash flow has grown by an average of 17% per year and its earnings have climbed at a stunning average annual rate of 24%.
The company’s strong, profitable growth has been a product of its admirable execution and the positive catalysts of its industry. People are spending more than ever on their pets, so overall spending on expensive animal drugs and diagnostics is exploding. The pandemic furthered this trend as people adopted pets at record numbers.
This led to something of a bubble in animal health stocks, with the P/E ratios of Zoetis and several of its peers topping 50 times in 2021. However, ZTS stock has now fallen 38% in 2022, bringing the shares down to a more reasonable forward earnings ratio of 27 times.
That’s still not especially cheap, but it’s understandable in light of the company’s sparkling growth figures. As the animal-companionship trend continues to strengthen, Zoetis’ shares should resume the steady gains in the years to come.
Roper Technologies (ROP)
Roper Technologies (NYSE:ROP) is a technology company that is something of a software conglomerate. Roper started off as Roper Industries and made a variety of industrial products. Over the years, it started making software solutions also, and it now makes mostly software. Yet, due to its history, many growth stock investors overlook Roper.
That’s a mistake. ROP stock has quadrupled over the past decade and is up a stunning 17,000% over the past 30 years. The company’s formula is a simple one. It buys software makers in niche markets; think insurance, power plant management, K-12 classroom software, and other such fields. It maximizes the cash flow of these assets, and it uses the cash flow to buy other software makers in separate industries.
ROP stock is trading for 27 times its forward earnings. That might seem expensive. But the stock is actually quite cheap compared to most of its software rivals, many of which lose money or are only slightly profitable.
Roper also has a track record of beating analysts’ average earnings estimates. It did so again this week, as its Q3 earnings per share came in at $3.67, well above the average estimate of $3.45.
The company also raised its forward guidance. Roper owns a lot of software companies in decidedly unglamorous industries. But it has proven that it can generate tremendous shareholder returns by buying and consolidating software producers that cater to a variety of sectors.
The streaming industry has had its fair share of struggles in 2022. As the world economy has reopened, people are going to real-world entertainment venues again. This means that they are spending less time at home on the couch and fewer hours streaming media content. Netflix (NASDAQ:NFLX) was an early victim of this trend, as NFLX stock collapsed earlier this year after the company surprisingly reported that its net subscriber count had fallen.
However, it appears that Netflix has righted the ship. NFLX stock jumped 12% earlier this month following its much better-than-expected Q3 earnings report. Not only did its revenues and earnings both top analysts’ average expectations, but the company’s subscriber base increased. That’s a major accomplishment at a time when so many of its competitors have lost momentum.
NFLX stock is now up to $300, well above its 52-week low of $163. This might cause investors to think that they’ve missed the opportunity to make a profit on the shares. However, don’t forget that the 52-week high was $700 and that Netflix’s shares have still lost 50% of their value over the past 12 months. Netflix continues to trade at relatively low valuations, and it’s less risky now that the company has released more strong content, rekindling interest in its shows.
Spire Global (SPIR)
Spire Global (NYSE:SPIR) is a small technology company focused on the satellite industry. Traditionally, satellite companies have launched large systems that are expensive to operate. Newer players, namely Spire and Planet Labs (NYSE:PL), have launched far smaller satellites that are more flexible and can be used for more purposes than their predecessors.
Like most stocks that merged with SPACs, SPIR stock has been a complete mess since going public; its shares are now down 90% off their highs. However, aggressive investors who buy its shares may well be rewarded. Thay’s because Spire is doing something unique; it’s the leader in “listening” satellites, whereas other players have focused on “looking” and “talking ” satellites.
Listening satellites are useful for collecting large amounts of data and then analyzing it with artificial intelligence. Spire’s satellites are proving useful for functions such as tracking global marine traffic, troop movements, and weather data.
Spire hasn’t reached profitability yet, but analysts, on average, expect its sales to reach $80 million this year and grow another 50% in 2023. That’s a solid base from which to build a larger business. Meanwhile, the valuation of SPIR stock, which has a price-sales ratio of 2.75, is certainly low enough to attract interest.
On the date of publication, Ian Bezek held a long position in ROP, META, and TXN stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.